Hopes fade for Japan-China-Korea trade talks

MitsuruObe

--Experts say a thaw in ties difficult until new leadership is established in the three countries

--Japan's ruling party is seen too weak to control nationalistic sentiment in Japan

(Adds details of trade ties between Japan, China and South Korea in 4th paragraph)

TOKYO--Hopes are fading that Japan, China and South Korea will reach a deal by the end of this year to kick off negotiations for a trilateral free trade agreement, as rising tensions over territorial disputes leave little room for leaders to discuss economic issues.

The launch of the talks would have a symbolic effect for kickstarting economic ties, especially between Japan and China, which have been severely curtailed after a bitter feud over a chain of small islands reignited in August. Japanese officials and experts say they see few signs that things are turning around.

"The FTA talks are unlikely to start this year," said a ruling party lawmaker familiar with the negotiation process. "The current atmosphere doesn't allow political problems to be put aside for the sake of economic cooperation."

The three-way pact is aimed at increasing trade among the Asian giants. China has been the number-one destination for Japan's exports over the past three years, and South Korea has been third after the United States.

Haku Shinkun, senior vice minister for the Cabinet Office and chair of the government's FTA panel. said that it is "difficult to say" whether the three-way FTA talks will be started by the end of the year, noting that even a meeting between their leaders has yet been set.

Launch of the negotiations would require a blessing by the leaders of the three countries, but Japanese Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao have no plans for a one-on-one meeting at the Asia-Europe Meeting that began in Laos from Monday. The two countries have also been unable to fix a leaders' meeting at next week's Association of Southeast Asian Nations summit.

The ASEAN summit is widely considered as the last opportunity this year for the three countries to launch the FTA talks. Once this window is missed, government officials and experts say, the three countries will likely have to wait until new governments are formed next year before the trilateral efforts can be restarted.

China is currently in a once-in-a-decade power transition, with Mr. Wen set to leave office by next March. South Korean President Lee Myung-bak will also vacate office in February, while Mr. Noda is expected to call a general election soon.

"It would be a lot easier to reset the bilateral relationship under new leadership," a Japanese trade official said.

Experts say a broad agreement will have to be reached between Mr. Noda and Mr. Wen on restarting bilateral exchanges before a specific economic agenda such as an FTA can move forward.

"China has a top-down government. No cabinet-level dialogue is possible before the course of action is set by its leadership," said Zhu Jianrong, professor of political science at Toyogakuen University in Tokyo.

Behind-the-scenes negotiations have been under way over the terms for Noda-Wen talks, government officials said. But the refusal of both sides to back down over the territorial dispute has made it nearly impossible to move forward other bilateral issues.

Experts also say that China sees Mr. Noda and his ruling Democratic Party of Japan's weak political base as major problem when working with Japan.

"The DPJ tends to take nationalistic stand on diplomatic issues because its support base is weak," said Prof. Zhu of Toyogakuen University, adding that the previous government led by the conservative Liberal Democratic Party didn't have to show such a stance.

Jian Min Jin, senior fellow at Fujitsu Research Institute in Tokyo, said that China views the DPJ government as failing to control former Tokyo Governor Shintaro Ishihara from starting a movement to buy the disputed islands, which ultimately led to their nationalization, triggering the latest flare-up between the two countries.

"It's not clear to China who is really in charge in Japan," he said.

Inconsistency in the DPJ's diplomatic policy is also irking China, experts say. The DPJ's first prime minister, Yukio Hatoyama, sought to distance himself from the traditional ally of the United States in preference of Asia-centered diplomacy. The next prime minister, Naoto Kan, then pursued a U.S.-centered FTA, the Trans-Pacific Partnership. Mr. Noda says he will seek both the TPP and FTA with China and Korea.

"It's not clear to China which way Japan wants to go in," said Toshiki Kanamori, senior counselor at the Daiwa Institute of Research and a former senior official of the Japanese Finance Ministry.

But with their economies increasingly becoming interdependent, a prolonged chill will come back to hurt them both, experts said.

China has become a not just a production base, but a key market for Japan, and for Chinese manufacturers, imported Japanese high-tech components are indispensable.

"As the dispute drags on, it would increasingly hurt both China and Japan," said Mr. Jin at Fujitsu Research.

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